Hem Raj vs The Divisional Manager
2024 Latest Caselaw 103 HP

Himachal Pradesh High Court

Hem Raj vs The Divisional Manager on 2 January, 2024

Author: Ajay Mohan Goel

Bench: Ajay Mohan Goel

    IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

                                          Arbitration Appeal No. 28 of 2023




                                                                       .
                                          Decided on : 02.01.2024





      Hem Raj, LSM                                                        ....Petitioner

                   Versus





      The Divisional Manager, Forest Working Division,
      Shimla                                                            ...Respondent




                                             of
      Coram
      The Hon'ble Mr. Justice Ajay Mohan Goel, Judge.
      Whether approved for reporting?1 Yes
      For the petitioner
                     rt           :       Mr. Rajender Singh Thakur,
                                          Advocate.

      For the respondent          :       Mr. Vijay Kumar Arora,
                                          Advocate.
      Ajay Mohan Goel, Judge              (Oral)

By way of this appeal filed under Section 37(1)(C)

of the Arbitration and Conciliation Act, 1996, the appellant

assails the judgment passed by learned District Judge,

Shimla, in Arbitration Case No. 17-S/2 of 2021, titled as Hem

Raj vs. The Divisional Manager, dated 16.05.2023, as also the

award passed by the learned Arbitrator in the matter of

dispute of Lot No. 13/2010 (Mashobra)-Resin Extraction,

FWD, Shimla (Shortfall recovery an amount of Rs. Rs.

6,38,400/-).

1 Whether reporters of the local papers may be allowed to see the judgment?

2. Brief facts necessary for the adjudication of the

present appeal are that a claim was filed by the Divisional

.

Manager against the appellant in the matter of dispute of Lot

No. 13/2010 (supra) which was allowed by the Arbitrator-

cum-Executive Director, Himachal Pradesh State Forest

Development Corporation, Shimla, vide award dated

of 17.01.2020, by awarding an amount of Rs.6,38,400/- on

account of shortfall in resin alongwith 9% from the date of rt institution of the case till its realization.

3. The objections filed by the appellant under Section

34 of the Arbitration and Conciliation Act, 1996, against the

award passed by learned Arbitrator, were dismissed by the

Court of learned District Judge, Shimla, vide judgment dated

16.05.2023.

4. Feeling aggrieved, the appellant has filed this

appeal under Section 37(1)(C) of the Arbitration and

Conciliation Act, 1996.

5. Learned Counsel for the appellant has argued that

the award passed by the learned Arbitrator as well as the

judgment passed in appeal, are not sustainable in the eyes of

law in terms of law declared by Hon'ble Supreme Court of

India in Elora Paper Mills Limited Versus State of Madhya

Pradesh2, as the Arbitrator, who happened to be the

Executive Director of the Himachal Pradesh State Forest

.

Development Corporation Limited, which was the claimant,

was ineligible to either officiate or continue as an Arbitrator.

6. Learned Counsel for the respondent-Corporation

has submitted that this issue was neither raised by the

of appellant during the arbitral proceedings nor in the objections

filed under Section 34 of the Arbitration and Conciliation Act, rt 1996, and therefore, the appellant is now estopped from

raising this issue. He further submitted that otherwise also,

perusal of the award passed by the learned Arbitrator would

demonstrate that it is a reasoned award, passed after taking

into consideration the material on record and the judgment,

which has been passed by the learned District Judge, is also

in terms of the law laid down Hon'ble Supreme Court vis-à-vis

the scope of Section 34 of the Arbitration and Conciliation

Act, 1996.

7. I have heard learned Counsel for the parties and

also gone through the award passed by learned Arbitrator and

the judgment passed by learned District Judge.

8. It is not in dispute that the claimant before the

learned Arbitrator was the Himachal Pradesh State Forest

(2022) 2 SCC 1

Development Corporation through its Divisional Manager,

Forest Working Division, Shimla and the arbitrator happened

.

to be the Executive Director of the Himachal Pradesh State

Forest Development Corporation Limited.

9. Hon'ble Supreme Court in Elora Paper Mills

Limited Versus State of Madhya Pradesh (supra), has been

of pleased to hold that Section 12 of the Arbitration and

Conciliation Act, has been amended by the Amendment Act, rt 2015, based on the recommendations of the Law Commission,

which specifically dealt with the issue of 'neutrality of

arbitrators'. Hon'ble Supreme Court further observed that to

achieve the main purpose for amending the provision to

provide for 'neutrality of arbitrators', sub-section (5) of Section

12 lays down that notwithstanding any prior agreement to the

contrary, any person whose relationship with the parties or

counsel or the subject matter of the dispute falls under any of

the categories specified in the Seventh Schedule, he shall be

ineligible to be appointed as an arbitrator. Hon'ble Supreme

Court also held that in such an eventuality, i.e. when the

arbitration clause is found to be foul with the amended

provision, the appointment of the arbitrator would be beyond

the pale of the arbitration agreement, empowering the Court

to appoint such an arbitrator as may be permissible and the

other party cannot insist upon the appointment of the

.

arbitrator in terms of the arbitration agreement.

10. For ready reference, Section 12(5) of the

Arbitration and Conciliation Act, 1996, is being reproduced

herein below:-

of "12(5)--Notwithstanding any prior agreement to the

contrary, any person whose relationship, with the rt parties or counsel or the subject-matter of the dispute,

falls under any of the categories specified in the

Seventh Schedule shall be ineligible to be appointed

as an arbitrator;

Provided that parties may, subsequent to disputes

having arisen between them, waive the applicability

of this sub-section by an express agreement in

writing."

11. The Seventh Schedule referred to therein provides

as under:-

"THE SEVENTH SCHEDULE [See section 12(5)] Arbitrator's relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer or

.

law firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.

5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence,

of in an affiliate of one of the parties if the affiliate is directly involved in matters in dispute in the arbitration.

rt

6. The arbitrator's law firm had a previous but terminated involvement in the case without the

arbitrator being involved himself or herself.

7. The arbitrator's law firm currently has a significant commercial relationship with one of the

parties or an affiliate of one of the parties.

8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even

though neither the arbitrator nor his or her firm

derives a significant financial income therefrom.

9. The arbitrator has a close family relationship with

one of the parties and in the case of companies with the persons in the management and controlling the company.

10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.

11. The arbitrator is a legal representative of an entity that is a party in the arbitration.

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointing

party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant

of financial income therefrom.

Relationship of the arbitrator to the dispute

15. The arbitrator has given legal advice or provided rt an expert opinion on the dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previous involvement in the case.

Arbitrator's direct or indirect interest in the dispute

17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.

18. A close family member of the arbitrator has a

significant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute. Explanation 1. The term "close family member" refers to a spouse, sibling, child, parent or life partner. Explanation 2. The term "affiliate" encompasses all companies in one group of companies including the parent company.

Explanation 3. For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or

.

commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint

the same arbitrator in different cases, this is a relevant fact to be taken into account while applying

of the rules set out above.]"

12. In this case, the arbitrator happened to be an rt employee of the claimant itself and thus was ineligible to be

appointed as an arbitrator in light of the amendment carried

out in Section 12 of the Arbitration and Conciliation Act,

1996, in the year 2015. Therefore, as the award in issue has

been passed by a person, who was ineligible to be appointed

as an arbitrator, the award in issue is void ab initio. As this

Court has held the award in issue to be void ab initio,

therefore, but natural, the judgment passed by learned

District Judge under Section 34 of the Arbitration and

Conciliation Act, 1996, in terms whereof the award was

upheld, becomes otiose. This appeal therefore succeeds and

the award dated 17.01.2020, passed by the Arbitrator-cum-

Executive Director H.P. State Forest Development Corporation

Limited, Shimla, is set aside being void ab initio, having been

passed by a person who was not eligible to be appointed as an

arbitrator, so is the fate of the judgment passed by learned

District Judge. However, setting aside of the award shall not

.

come in the way of the claimant in having an arbitrator

appointed for the adjudication of the issue, in accordance

with law.

The petition stands disposed of in above terms.

of Pending miscellaneous application(s), if any, also stand

disposed of accordingly.

                      rt                 (Ajay Mohan Goel)
    January 02, 2024                           Judge

       (narender)